Australia: Australian competition regulation: What should we expect for 2012?

Introduction

The past year has seen some interesting developments in
Australian competition regulation. Further substantive developments
will occur during 2012. Dr Martyn Taylor briefly summarises some of
these developments and gazes into the crystal ball for the coming
year.

Martyn recently joined our global competition team as a Partner
in the Sydney office. He is the author of the book
'International Competition Law' and contributes to
'Merger Control Worldwide'. Martyn also co-authors
CCH's comprehensive commentary on the Competition and Consumer
Act 2010 (Cth). Martyn has a PhD in competition law and some 18
years' first-tier experience in competition and regulatory
matters.

Norton Rose Group's global competition team now ranks as one
of the world's 'top 20' competition teams.

Changes at the ACCC – a strategic approach with a
pragmatic focus

In the past year, Graeme Samuel ended his eight year tenure as
Chairman of the Australian Competition and Consumer Commission
(ACCC) and was replaced by Rod Sims. Peter Kell departed as Deputy
Chairman. Some internal restructuring has also occurred within the
ACCC.

Graeme Samuel's legacy is a strong and well-respected
organisation. The ACCC is consistently regarded as one of the best
competition regulators in the world. Under Rod Sims, the high
quality of ACCC decision-making will continue. Rod Sims is very
highly regarded and brings extensive private and public sector
experience to this role.

Rod Sims has indicated he expects the ACCC to be strategic, not
reactive. He will continue to give priority to those areas that
have the greatest potential for consumer detriment or where market
structures need most support. He also believes the ACCC should
litigate more frequently. He is prepared to take action even if the
law is unclear and success is not assured, suggesting a tougher
enforcement approach.

Following the recent Metcash decision, we also anticipate the
ACCC will wish to test the commercial veracity of its competition
theories to a higher degree. The ACCC under Rod Sims will likely be
more pragmatic and commercially nuanced in its analysis of
competition issues.

Merger review – greater evidence-gathering and
commercial analysis

In the last financial year, the ACCC undertook around 140 merger
reviews. Around 80 per cent of these acquisitions were
unconditionally cleared while another 15 per cent were either
withdrawn or were the subject of undertakings to resolve ACCC
concerns. Only seven acquisitions were formally opposed by the ACCC
and only three of these publicly. These statistics are consistent
with previous years and indicate that only a very small proportion
of acquisitions reviewed by the ACCC give rise to serious
competition concerns.

One of the acquisitions publicly opposed by the ACCC was grocery
wholesaler Metcash's proposal to acquire the Franklins
supermarket business. In December 2011, the full bench of the
Federal Court dismissed the ACCC's application to declare that
acquisition in contravention of section 50 (prohibited
acquisitions) of the Act. The Metcash decision involved the most
significant merger review litigation since 2003 and involved a rare
opportunity to obtain Federal Court guidance on the ACCC's
approach to merger review.

The practical outcome of Metcash is that the Federal Court
expects any competition analysis to be pragmatic and commercially
focussed.

The Federal Court confirmed that economic theory must be linked
to commercial reality. Any competition analysis must apply that
theory in light of actual market circumstances as supported by
objective evidence. The ACCC subsequently issued a press release to
confirm that it would undertake its competition analysis based on
commercially relevant facts, assessments and evidence and not
speculative possibilities.

While Metcash occurred in a merger review context, it also has
practical implications for the ACCC's general approach to any
competition analysis:

A pragmatic and commercially focussed approach is necessarily
fact intensive. We anticipate a greater focus on ACCC information
gathering to support any future competition analysis.

The ACCC may issue more statutory 'section 155' notices
to compel the disclosure of information. Section 155 notices are
the ACCC's primary instrument for information gathering where
information is not voluntarily disclosed by a party.

The ACCC could also encourage third parties to substantiate
their submissions during the ACCC's 'market inquiry'
consultation processes so that the ACCC has cogent evidence of
anti-competitive effects.

For the 20 per cent of mergers not unconditionally cleared (some
of which are withdrawn), we anticipate a greater dialogue with the
ACCC and a more information-intensive approach. Ultimately, this
approach may lead to slower ACCC decisions, yet may also provide a
greater opportunity for engagement with the ACCC to identify and
resolve specific concerns.

During 2011, the Act was also amended so that acquisitions in
'non-substantial' markets are subject to section 50. This
amendment addressed a policy concern that an incremental
'creeping' acquisition could have a substantial competitive
effect in a local market, but may escape regulation if that local
market is not sufficiently 'substantial' under the Act.
While long awaited, this amendment may result in little change from
historic practice as the ACCC has already been recognising the
existence of local markets in its relevant merger reviews.

A controversial development during 2011 was the enactment of
'price signalling' prohibitions into the Act. The
prohibitions will take effect in June and are proposed (by
regulation) to apply to all deposit-taking, and advances of money,
undertaken by an authorised deposit-taking institution.

Private disclosure of pricing information to competitors will be
prohibited. Public disclosure of certain information will also be
prohibited where the disclosure has the purpose of substantially
lessening competition. Certain exceptions apply, including where a
public disclosure is made in the ordinary course of business.

While the prohibitions will initially apply only to banking
activities, they could well be applied more broadly in the future
by Ministerial regulation. Political discourse could occur in the
future for the application of these prohibitions to other economic
sectors, such as petrol retailing and groceries.

During 2011, the ACCC successfully prosecuted various instances
of alleged anti-competitive behaviour. In December 2011, for
example a major supplier of tickets for entertainment events was
fined $2.5 million for taking advantage of substantial market
power. In November 2011, a further airline was fined $5.5 million
for price fixing. Proceedings against another seven airlines are
continuing. The ACCC is currently involved in a major prosecution
in the cement industry.

Rod Sims has emphasised that a successful litigation outcome for
the ACCC includes publicity and clarification of the law,
irrespective of any 'win' or 'loss'. He has
indicated a 100 per cent success rate would suggest the ACCC is too
risk averse in taking enforcement action. He has also signalled the
need for the ACCC to test the law on important issues. We therefore
anticipate the ACCC will be less risk averse in commencing
enforcement action, suggesting a tougher enforcement approach.
Based on comments to date, we expect priority areas for the ACCC
during 2012 will include supermarkets, telecommunications,
airports, and any instances of cartel conduct.

Given recent views of the Federal Court, we expect financial
penalties to continue to increase. The ACCC and Director of Public
Prosecutions have not yet sought imprisonment for any contravention
of the new cartel provisions, but they may do so (consistent with
international trends) if an appropriate opportunity arose.

Regulated infrastructure – streamlining the national
access regime

In a speech in November 2011, Rod Sims was critical of the
effective operation of the national infrastructure access regime in
Part IIIA of the Act. He noted it has taken some seven years for
Fortescue to obtain access to railways in the Pilbara. It has also
taken some five years for Virgin to obtain access to aeronautical
services at Sydney Airport. He indicated that the ACCC's view
is that the national access regime is not working effectively and
there is a need to streamline the approach.

Rod Sims highlighted that an approach that was working
effectively was for State or Federal governments to make specific,
upfront decisions to require access to infrastructure under Part
IIIA, thus avoiding delays in the Part IIIA declaration process.
Such an approach was undertaken in the context of access to grain
port terminals for wheat export. A similar approach was adopted in
the context of rail access arrangements in the Hunter Valley.

Given the ACCC's focus on this issue, we expect Government
interest in streamlining the Part IIIA process. We also anticipate
that there will be a greater likelihood of State and Territory
Governments requiring infrastructure to be 'open access'
(and potentially directly subject to Part IIIA) as a condition, for
example, of obtaining Government consents or approvals.

Telecommunications – major reforms to support the NBN
rollout

During 2011, the most significant reforms in the last 15 years
were made to the telecommunications access regime in Part XIC of
the Act. These amendments streamline the application of that access
regime and establish a new framework for the regulation of the
National Broadband Network (NBN) as it is progressively rolled
out.

A fundamental change to the application of Part XIC has been the
removal of the ACCC's powers to arbitrate disputes over access
to 'declared' (regulated) telecommunications services.
Rather, the ACCC now determines default terms and conditions of
access, including pricing, via access determinations. In the
absence of commercial agreement, those default terms automatically
apply and can be supplemented by 'binding rules of conduct'
issued by the ACCC if there is an urgent need.

NBN Co Limited is now subject to a self-contained regime within
Part XIC. NBN Co is only permitted to supply services that are
regulated under Part XIC. Regulation is automatically imposed if
NBN Co supplies a service under a 'standard form of access
agreement' or gives a voluntary 'standard access
undertaking' (SAU). Alternatively, the ACCC may
'declare' that a service is subject to regulation following
a public inquiry if the requisite statutory criteria are met.

NBN Co is subject to access determinations and binding rules of
conduct, but is also subjected to new non-discrimination
requirements. These requirements prevent NBN Co discriminating
between access seekers of the same class, effectively requiring
that common contractual terms and pricing must be offered to all
parties seeking to acquire services from NBN Co.

Pursuant to the new regime, NBN Co has sought approval from the
ACCC for its SAU. Telstra has also sought approval from the ACCC
for its own 'structural separation undertaking' (SSU)
pursuant to which Telstra will progressively migrate customers from
its legacy copper access network to the new NBN Co fibre access
network. We expect the SAU and SSU to be approved by the ACCC later
this year, meaning that the NBN will become a practical reality for
the Australian telecommunications sector.

However, it remains an open question whether the NBN will
proceed if the Government were to change. Current Liberal Party
policy is that the NBN would be cancelled and potentially replaced
by a private sector broadband solution with less reliance on
Government funding.

Energy – implementation of the National Energy
Customer Framework

The Australian Energy Regulator (AER) is part of the ACCC but
operates with an independent three member Board. Its functions
encompass the wholesale electricity and gas markets and network
infrastructure. The AER administers various national energy laws
that aim to encourage competition in upstream and downstream
markets by ensuring access to monopoly infrastructure and by
providing the frameworks for contestable and competitive energy
markets.

Under the next major stage of the national energy reform
process, the AER will take on new roles in energy retail markets
from 1 July 2012. A new National Energy Customer Framework (NECF)
will apply that involves the harmonisation of state-based
regulatory frameworks (excluding retail price regulation and
community service obligations) into a single set of national
rules.

The NECF will apply to the relationships between energy
customers, retailers and distributors, particularly in relation to
terms of engagement. It also covers small customer dispute
resolution, credit support arrangements, and retailer of last
resort arrangements. The NECF will not apply in Western Australia
and the Northern Territory.

The AER's responsibilities under the NECF will include
granting retailer authorisations and exemptions, approving
retailers' policies for dealing with customers facing hardship,
monitoring market activity and retailer behaviour, administering a
retailer of last resort scheme, and enforcing compliance with the
Law.

Consumer protection – the benefits of a harmonised
national regime

On 1 January 2011, a new national consumer-protection regime
came into effect, known as the 'Australian Consumer Law'
(ACL). The ACL replaced around 20 existing national, State and
Territory laws with a single harmonised law as set out in Schedule
2 of the Competition and Consumer Act 2010 (Cth). The existing
consumer protection provisions in the Act have been moved into that
Schedule.

The ACL is administered and enforced jointly by the ACCC and the
State and Territory consumer protection agencies, but with the ACCC
taking a lead role in co-ordinating enforcement activity. As part
of the reforms, new enforcement tools and remedies have been
provided to the ACCC, including the capacity to require traders to
substantiate any claims. The ACCC also has the power to obtain
redress on behalf of consumers, and to issue infringement and
public warning notices.

Penalties under the ACL include infringements notices for less
serious offences that attract penalties of $6,600 for corporations
and $1,320 for individuals. For serious matters where court action
is necessary the ACCC is able to pursue penalties of up to $1.1
million for corporations and $220,000 for individuals for each
contravention. Such penalties can aggregate over multiple
contraventions to significantly greater amounts:

In April 2011, civil penalties of $2.7 million were awarded
against the perpetrators of an alleged small business scam
involving the issuing of misleading invoices for online business
directories. The ACCC also successfully obtained non-party redress
by having some 4000 contracts declared void thereby preventing the
collection of over $6 million from the scam.

In July 2011, Federal Court handed down the largest civil
penalty to date in a consumer protection case taken by the ACCC.
Optus was ordered to pay $5.26 million for misleading and deceptive
conduct in advertising its broadband internet plans.

We anticipate that the ACCC will continue to give ACL issues a
high degree of priority during 2012 as the ACCC tests its new
powers (in conjunction with State and Territory agencies) and seeks
to ensure the effective operation and application of the new
regime.

During 2011, the unconscionable conduct provisions in the ACL
were amended to include a list of interpretative principles. The
provisions were also simplified and unified in their application to
businesses and consumers. The intended effect of these amendments
is to ensure the law evolves in a consistent manner with clear
guidance given to relevant stakeholders. Rod Sims has indicated he
will seek to apply these provisions to a broader range of
circumstances than has historically been the case, including
door-to-door energy selling and potentially supermarkets.

Carbon pricing – the ACCC has a price oversight
role

On 1 July 2012, the government will introduce a 'carbon
price' that will apply to certain greenhouse emissions. As with
the historical implementation of GST, the ACCC will have a
compliance and enforcement role regarding claims made by businesses
as to the impact of the new law on the price of their goods and
services

The ACCC has been directed by the Government to make it a
priority to investigate and, where appropriate, initiate
proceedings against businesses who engage in practices concerning
the impact of a carbon price that contravene the ACL. The ACCC will
also seek to educate businesses and raising awareness amongst
consumers, hence we can potentially expect significant media
coverage of carbon price issues later this year.

Consistent with previous years, we are noticing a greater volume
of the most serious competition matters have a cross-border
dimension. Globalisation and the rise of the Internet mean that
competition issues do not stop at territorial boundaries.

The ACCC has a continued focus on co-ordinating its
investigation and enforcement activities with offshore regulators.
The ACCC's role in the International Consumer Protection and
Enforcement Network has seen it play a leading role in the fight to
disrupt scam activity, particularly on the Internet. The ACCC has
also played an important role in a number of global cartel
investigations and has indicated that a number of merger decisions
during the last financial year required cooperation with overseas
counterparts.

Norton Rose Group's global competition team now ranks as one
of the world's 'top 20' competition teams. The team has
significant experience acting in competition matters with a
cross-border dimension, including global cartel investigations,
cross-border arrangements and multinational mergers.

Please feel free to contact us if you have any questions arising
from any material contained in this publication.

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